It is good when a political party does things that are popular and are likely to make the world better.
The "Inflation Reduction Act" is big and complicated. It needs explanation.
Let's start.
Most of what the public knows about the new law is that it is complicated, that every Republican voted against it, and that Joe Manchin and Kyrsten Sinema finally agreed to it. The law is so wide-ranging that it is hard to sell, and easy to mischaracterize. We know it is expensive and controversial. But what is in it that is good?
One good thing is that It includes $80 billion to bring IRS staffing back up to its prior staffing and audit levels. Currently the largest corporate and individual taxpayers face a 2% chance of audit. Honest taxpayers are currently shouldering the weight of tax cheats. The new law increases tax compliance and raises money while doing so.
This provision faces criticism. Ted Cruz's comments on that are typical, voiced in a fundraising appeal sent to me this week:
And leave it to the Democrats to pile on with their Big Government STUPIDITY. . . .
They want to spend $80 billion over the next decade to DOUBLE the size of the IRS. They want to hire 87,000 new agents & triple the number of audits the agency can perform. . . .
This new army of IRS agents will be coming after the middle-class and small business owners. Once again, the Democrats want to use our own government to punish us! . . .
My position is clear: Derailing this scheme isn’t enough – We need to ABOLISH the IRS!
This is a broken agency that can’t even answer the phone when taxpayers need help, and has been weaponized by the left time and time again to target conservatives!Take a stand to stop this insanity and GET THESE LUNATICS OUT OF POWER.
The IRS is, indeed, a broken agency that can't even answer the phone when taxpayers need help. It doesn't need de-funding. It needs adequate funding again.
Starving the IRS has been policy of the GOP. Taxpayer compliance for large, complicated returns has essentially been on the honor system. Citizens read news stories that the largest businesses and wealthiest people pay no taxes. It sends a message that normalizes tax cheating. Trump famously noted that he paid no taxes for many years and credited it to being "smart." Tax scofflaws take a very "aggressive" tax posture, counting on a very low chance of an audit.
The new law makes that riskier. It targets taxpayers and businesses with incomes over $400,000 a year. There is a practical reason for that. People with large incomes from businesses have tax returns that are complicated enough that "aggressive" tax postures are possible and the recovery of taxes owed is meaningful. There is a political reason, too. There is bi-partisan resentment that the rich appear to get away with lawbreaking and the "average guy" is picked on. Cruz claims the new law will continue this. The intent of the law is to do the opposite.
People who cheat on their taxes may oppose this provision of the new law. Honest taxpayers, and people who expect others to be honest, have reason to be happy with the law, if they know what is in it. Honest taxpayers subsidize cheaters.
Democrats need someone to communicate that message with as much clarity and vigor as Cruz and others like him communicate theirs. Normally that would be the job of the president. Biden showed he has legislative skills by getting this bill passed. I had underestimated Biden. Still, the job of persuasive, vigorous communication is not Biden's strength. I am hopeful potential Democratic successors to Biden step up to play that role.
I expect to continue unpacking the new law. Future posts include:
1. The law added the definition of carbon dioxide as an "industrial pollutant." This tiny change fixed the Supreme Court's decision in West Virginia vs. EPA which limited the EPA's ability to regulate power plant emissions.
2. The bill continues funding for Medicaid expansion under the Affordable Care Act, so that the working poor have health insurance.
3. The bill puts America on an even footing with other countries in having a 15% minimum tax on corporations.
Excellent job of explaining the IRA. Thanks, Peter!
It is worth noting that Sinema only joined in passing this legislation right after receiving just under a million dollars from the vulture capital industry and ensuring their huge tax break on 'carried interest was not touched. Hohoho. As I understand Manchin also got most of what he wanted to keep feeding at the public trough.